A common supply-side interpretation of the 80s goes something like
this: "Carter's tax-and-spend policies ruined the economy, and sent
America into the worst recession since World War II. Reagan inherited many
of those economic problems, but once he cut taxes, America's entrepreneurial
spirit was unshackled. We experienced the greatest peacetime expansion
in postwar history - the so-called 'Seven Fat Years' from 1983 to 1989.
Then George Bush broke his 'Read my lips: no new taxes' pledge, and sent
the economy back into recession."

There are several problems with this story. First, Carter actually
began many of the policies that Reagan would later become known for; Carter
gave the rich a capital gains tax cut, massively deregulated key industries
like trucking and airlines, and even increased defense spending. This was
also the period that corporate PACs began compelling Congress to pass pro-business
legislation. According to supply-side theory, these actions should have
nudged the economy in the right direction, not plunged it into the worst
recession in 40 years. Other problems involve timing: Reagan's first tax
cuts went into effect in 1982, but this was also the summer that the Federal
Reserve Board slashed interest rates and expanded the money supply. Most
economists believe the Fed, not Reagan, was responsible for the following
recovery. Finally, the recession of 1990 began four months before
Bush broke his "no new taxes" pledge. The recession began in July
1990; Bush signed his tax increases into law in November 1990.

And supply-siders are careful to note that Reagan's was the longest
peacetime expansion since World War II. In truth, the Kennedy-Johnson
expansion was longer: 106 months compared to Reagan's 92.1
Of course, there was a war in Vietnam, which gives supply-siders an excuse
to dismiss it because wars are beneficial to the economy. But they are
beneficial because governments engage in Keynesian borrowing and spending
during them (which could be directed to social services as well as war).
Unfortunately for supply-siders, it was really Keynesianism that produced
the longest economic boom since World War II.

And this observation is even more of a victory for Keynesianism than
it sounds. For all his public promotion of supply-side economics, Reagan
actually practiced a massive form of Keynesian borrowing and spending.
Almost $2 trillion worth, to be exact. (Although most liberals would point
out this was excessive even by Keynesian standards.)

The following chart shows the business cycle (recessions and recoveries)
since 1973:

As you can see, economic growth varies considerably
from year to year. This allows political spin doctors to prove anything
they want to prove, by choosing the most convenient comparison dates and
indulging in clever rhetoric. Economists have a way of getting around this.
They arrive at an accurate assessment by measuring potential growth
instead of actual growth. (More) The result
of such a measurement shows that Reagan did no better or worse than Ford,
Carter or Bush. Potential growth under all four presidents remained pretty
much the same: about 2.5 percent.3

Supply-siders had boasted that their policies would increase
potential growth, not just actual growth. The fact that they failed stands
as yet another indictment of their theory.

As mentioned earlier, the cycle of recessions and recoveries is normal.
But they generally follow a long-term trend of growth; therefore, a deep
recession is going to be followed by an even steeper recovery. This is
why the unusually severe 80-82 recession was followed by such a long recovery.
Reagan's fortune with the economy was predetermined by events that occurred
even before his first tax cuts.

The following chart shows the 70s' growing problem with inflation.
Coupled with growing unemployment, it formed the "misery index"
or "stagflation" that had been predicted by economists in the
60s. The misery index reached 20 percent by 1980, and was a major factor
in costing Jimmy Carter the presidency.

Many misconceptions exist about job growth and loss during the 80s.
The charge that we suffered a net loss of jobs because corporations were
shipping them overseas to low-wage nations is a myth. Although some industries
may be doing this, the U.S. has actually been the world's success story
in creating jobs.

Job Growth, 1973-19906

United States 38%
Japan 19
Europe 8

Another myth concerns our loss of manufacturing
jobs. First, manufacturing jobs do not pay significantly more than service
jobs: only 10 percent more. Second, all industrialized nations have
been losing their manufacturing jobs, as technology and computerization
continue to make production more efficient. (More)

Employment in Manufacturing as a Percentage of Non-Agricultural Employment7

1970 1991
United States 27% 17
Japan 33 27
Germany 40 33

Another myth is that Reagan was one of the best Presidents for job
creation. In reality, he's among the worst:

Supply-siders boast about the 18 million jobs created in the 80s,
but they grow unusually mum over the 24 million jobs created during the
70s. The 80s put 2.6 percent more of the population to work, but the 70s
outdid them at 3.4 percent. The increasing percentage of the population
joining the workforce during these two decades can be attributed to two
factors: baby-boomers coming of age, and women joining the workforce in
record numbers.

Why were women joining the workforce in greater numbers? Because
their husbands' earnings have been generally declining since 1973, and
families have had to form two-paycheck households to maintain their parents'
standard of living. Unfortunately, in accordance with the laws of supply
and demand, an influx of workers into the workforce puts downward pressure
on wages. So the solution partially contributed to the problem.

Labor Force Participation Rate of Married Women with Children Under
6-Years Old11

1960 18.6%
1970 30.3
1980 45.1
1993 59.6

The 1980s featured a record flurry of deregulation, bankruptcies,
stock speculation, junk bonds and corporate mergers and takeovers. To make
sense of all this activity, it is helpful to know that it was essentially
an age of corporate Darwinism -- an era of kill or be killed -- fueled
by massive deregulation. In truth, Reagan did very little to deregulate
business; the basic deregulatory machinery had already been put in place
by Jimmy Carter before he left office. Reagan simply accelerated the process.
The Federal Register is where all of America's proposed and adopted
regulations are found, and in 1980 it ran 87,012 pages. By 1986, this
was cut almost in half: to 47,418 pages.12

The unrestrained competition that followed temporarily resulted in
lower consumer prices and better service. But before long, the competition
turned keen, then destructive. A backlash grew against deregulation
as businesses cut safety and environmental corners, laid off thousands
of workers and began cutting services to unprofitable rural areas. In a
few years, business failures shot up to five to six times their usual number:

In 1988, Federal Trade Commissioner Andrew
Strenio remarked: "Since Fiscal Year 1980, there has been a drop
of more than 40 percent in the work years allocated to antitrust enforcement.
In the same period, merger filings skyrocketed to more than 320 percent
of their Fiscal Year 1980 level."15
In almost all fields, productive and economic power began concentrating
in the hands of a few. The emerging monopolies and oligopolies then began
raising prices, cutting back services and generally abusing their power
-- the deregulated Savings & Loan industry being the prime example.
(More)

One of the supply-siders' central promises was that tax cuts would
allow greater savings and investment, which would spur the economy. In
fact, savings and investment worsened in the 80s:

Public investment was about 3 percent during the 50s and 60s. By
the Reagan-Bush era, it was about 1 percent. Although Reagan and Bush did
not start this decline, their policies did steepen it.19

This is a major problem for supply-side theory. Supply-siders
boast that the 80s were a golden era of American entrepreneurialism, but
this was supposed to be the result of greater savings and investment, thanks
to liberated tax dollars. That is, we should have seen the percentage of
savings and investment rise as the percentage of taxes fell. But
if no such greater savings and investment even occurred, then the supply-side
defense of the 80s is debunked outright.

Some true believers might then argue that supply-side economics were
not tried at all, since the general rate of taxation in the 80s remained
just as high as the 70s (18.7 percent of the GDP). This is an expensive
concession, since it abandons the argument that cutting taxes for the rich
helps the economy. Even more expensively, it leaves Keynesians to claim
credit for the 80s. However, applying supply-side tax cuts to the general
rate is also an unpromising theory. As the section comparing the U.S. to
other rich nations will show, the U.S. has the lowest general tax rate
in the entire industrialized world -- and the worst savings and investment
rates as well!